What Are Financial Strength Ratings (And Why Are They Important)?

Several agencies use a rating system to provide an opinion as to an insurer’s financial strength and ability to meet ongoing obligations to policyholders. Ratings are typically derived from an evaluation of a company’s balance sheet strength, operating performance, and business profile, among other factors. Some of the most respected ratings agencies are A.M. Best, Moody’s, Standard & Poor’s (S&P®), and Fitch. Annuity FYI recommends that you purchase only annuities that are rated in the top three rankings with A.M. Best, Moody’s, & Fitch. Rating refers only to the financial overview of the company and is not a recommendation of specific policy provisions, rates or practices of the insuring company.
The following table lists the financial strength ratings for companies whose variable annuities are recommended on Annuity FYI (for financial strength ratings of companies offering fixed annuities, please go to our Compare Fixed Annuities section and click on the company name). After this table is a ratings guide to several ratings agencies.
While we do our best to keep the below table up-to-date, financial strength ratings can change without advance notice. As such we cannot guarantee the timeliness of this table. Please check with your financial advisor or an Annuity FYI Professional or the financial strength ratings of insurance companies before purchasing an annuity.

Financial Strength Ratings

Company

A.M. Best

Fitch

Moody’s

S&P®

Allianz

A

–

A2

AA

Ameritas

A

–

–

A+

AXA Equitable

A+

AA-

Aa3

A+

Fidelity Investments Life Insurance Company

A+

–

–

A+

Jackson National

A+

AA

A1

AA

John Hancook Life Insurance Co

A+

AA-

A1

AA-

Licoln Financial

A+

A+

A1

AA-

MetLife Investors USA Insurance Company

A+

AA-

Aa3

AA-

Nationwide Life & Annnutiy Insurance Company

A+

–

A1

A+

Pacific Life

A+

A+

A1

A+

Protective

A+

A

A2

AA-

Prudential Annuities Life Insurance Corporation

A+

A+

A1

AA-

Sun America

A

A+

A2

A+

Transamerica Life Insurance Company

A+

AA-

A1

AA-

Ratings Guide

(from the respective ratings agencies listed below)

A.M. Best:

A++ and A+ (Superior) Assigned to companies which have, on balance, superior balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a very strong ability to meet their ongoing obligations to policyholders.A and A- (Excellent) Assigned to companies which have, on balance, excellent balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a strong ability to meet their ongoing obligations to policyholders.B++ and B+ (Very Good) Assigned to companies which have, on balance, very good balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have a good ability to meet their ongoing obligations to policyholders.B and B- (Fair) Assigned to companies which have, on balance, fair balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.C++ and C+ (Marginal) Assigned to companies which have, on balance, marginal balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions.C and C- (Weak) Assigned to companies which have, on balance, weak balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, have an ability to meet their current obligations to policyholders, but their financial strength is very vulnerable to adverse changes in underwriting and economic conditions.D (Poor) Assigned to companies which have, on balance, poor balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best Company. These companies, in our opinion, may not have an ability to meet their current obligations to policyholders and their financial strength is extremely vulnerable to adverse changes in underwriting and economic conditions.

Fitch:

AAA (Exceptionally strong) Insurers assigned this highest rating are viewed as possessing exceptionally strong capacity to meet policyholder and contract obligations. For such companies, risk factors are minimal and the impact of any adverse business and economic factors is expected to be extremely small.AA (Very strong) Insurers are viewed as possessing very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and the impact of any adverse business and economic factors is expected to be very small.A (Strong) Insurers are viewed as possessing strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small.BBB (Good) Insurers are viewed as possessing good capacity to meet policyholder and contract obligations. Risk factors are somewhat high, and the impact of any adverse business and economic factors is expected to be material, yet manageable.BB (Moderately weak) Insurers are viewed as moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though positive factors are present, overall risk factors are high, and the impact of any adverse business and economic factors is expected to be significant.B (Weak) Insurers are viewed as weak with a poor capacity to meet policyholder and contract obligations. Risk factors are very high, and the impact of any adverse business and economic factors is expected to be very significant.CCC, CC, C (Very weak) Insurers rated in any of these three categories are viewed as very weak with a very poor capacity to meet policyholder and contract obligations. Risk factors are extremely high, and the impact of any adverse business and economic factors is expected to be insurmountable. A ‘CC’ rating indicates that some form of insolvency or liquidity impairment appears probable. A ‘C’ rating signals that insolvency or liquidity impairment appears imminent.DDD, DD, D (Distressed) These ratings are assigned to insurers that have either failed to make payments on their obligations in a timely manner, are deemed to be insolvent, or have been subjected to some form of regulatory intervention. Within the DDD-D range, those companies rated ‘DDD’ have the highest prospects for resumption of business operations or, if liquidated or wound down, of having a vast majority of their obligations to policyholders and contractholders ultimately paid off, though on a delayed basis (with recoveries expected in the range of 90-100%). Those rated ‘DD’ show a much lower likelihood of ultimately paying off material amounts of their obligations in a liquidation or wind down scenario (in a range of 50-90%). Those rated ‘D’ are ultimately expected to have very limited liquid assets available to fund obligations, and therefore any ultimate payoffs would be quite modest (at under 50%).Notes: “+” or “-” may be appended to a rating to indicate the relative position of a credit within the rating category. Such suffixes are not added to ratings in the “AAA” category or to ratings below the “CCC” category.

Moody’s:

Aaa. Insurance companies rated Aaa offer exceptional financial security. While the financial strength of these companies is likely to change, such changes as can be visualized are most unlikely to impair their fundamentally strong position.Aa. Insurance companies rated Aa offer excellent financial security. Together with the Aaa group, they constitute what are generally known as high-grade companies. They are rated lower than Aaa companies because long-term risks appear somewhat larger.A. Insurance companies rated A offer good financial security. However, elements may be present which suggest a susceptibility to impairment sometime in the future.Baa. Insurance companies rated Baa offer adequate financial security. However, certain protective elements may be lacking or may be characteristically unreliable over any great length of time.Ba. Insurance companies rated Ba offer questionable financial security. Often the ability of these companies to meet policyholder obligations may be very moderate and thereby not well safeguarded in the future.B. Insurance companies rated B offer poor financial security. Assurance of punctual payment of policyholder obligations over any long period of time is small.Caa. Insurance companies rated Caa offer very poor financial security. They may be in default on their policyholder obligations or there may be present elements of danger with respect to punctual payment of policyholder obligations and claims.Ca. Insurance companies rated Ca offer extremely poor financial security. Such companies are often in default on their policyholder obligations or have other marked shortcomings.C. Insurance companies rated C are the lowest-rated class of insurance company and can be regarded as having extremely poor prospects of ever offering financial security.Note: Moody’s applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

S&P®:

AA. An insurer rated ‘AA’ has VERY STRONG financial security characteristics, differing only slightly from those rated higher.

A. An insurer rated ‘A’ has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.

BBB. An insurer rated ‘BBB’ has GOOD financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers. An insurer rated ‘BB’ or lower is regarded as having vulnerable characteristics that may outweigh its strengths. ‘BB’ indicates the least degree of vulnerability within the range; ‘CC’ the highest.

BB. An insurer rated ‘BB’ has MARGINAL financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.

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